Opinion
1:22-CV-00504-DAE
05-04-2023
SHANE STEVENS and RELIANT IMMUNE DIAGNOSTICS, INC. Plaintiff v. ANHUI DEEPBLUE MEDICAL TECHNOLOGY CO., LTD., Defendant
HONORABLE DAVID A. EZRA UNITED STATES DISTRICT JUDGE
REPORT AND RECOMMENDATION OF THE UNITED STATES MAGISTRATE JUDGE
DUSTIN M. HOWELL UNITED STATES MAGISTRATE JUDGE
Before the Court is Defendant Anhui Deepblue Medical Technology Company, Ltd.'s (“Deepblue”) Motion to Dismiss, Dkt. 7, and all related briefing. After reviewing these filings and the relevant case law, the undersigned issues the following report and recommendation recommending that the District Court grant Deepblue's motion.
I. BACKGROUND
This case arises out of the sale of 100,000 COVID-19 antibody test kits manufactured by Deepblue, a Chinese medical technology company with its principal place of business in Anhui Province, China. Dkt. 1, at 1-2. On May 30, 2020, Shane Stevens and Reliant Immune Diagnostics (“Plaintiffs”) entered into an agreement with Rallo Holdings (“Rallo”), a wholesale distributor, to purchase the 100,000 test kits for $600,000. Plaintiffs ultimately paid $481,125.00 representing a 75% downpayment on the tests. Id. at 11. Plaintiffs allege that after the test kits were delivered, “a validation study ... revealed the antibody tests were defective.” Id. at 2. After discovering the defect, Plaintiffs declined to tender the remaining 25% of the purchase price due under their agreement with Rallo. Id. In addition to independently concluding the tests were defective, Plaintiffs learned that Deepblue had failed to obtain FDA approval. Id. Further, the person that connected Plaintiffs to Rallo reportedly admitted the tests were “not the best.” Id. Plaintiffs claim that, despite numerous conversations, they have yet to be refunded for the defective tests. Id.
Plaintiffs bring six claims against Deepblue alleging: (1) breach of contract under the Texas Business and Commerce Code; (2) unfair and deceptive business practices under the Texas Deceptive Trade Practices Act (“DTPA”); (3) manufacturing defect; (4) breach of implied warranty of fitness for a particular purpose; (5) breach of implied warranty of merchantability; (6) and fraud. Id. at 13-19. Plaintiffs seek to recover $481,125.00, representing their 75% downpayment, expectation damages, reliance damages, attorney's fees, costs, and other economic damages. Id.
Deepblue moves to dismiss Plaintiffs' claims, arguing that this Court lacks personal jurisdiction over it as a Chinese corporation that “has no connections to Texas and has not directed any actions toward the State of Texas.” Dkt. 7, at 8. Deepblue also argues that Plaintiffs have failed to demonstrate that a contract existed between it and Plaintiffs, and that Plaintiffs have not adequately alleged fraud claims, have failed to allege a unique particular purpose as required for Plaintiffs' breach of implied warranty claim, and have not alleged a specific deviation from the test kits intended design for the purposes of their manufacturing defect claim. Id. And Deepblue argues that even if the Court does have jurisdiction over it, each of Plaintiffs' claims should be dismissed. Id.
II. LEGAL STANDARDS
A. 12(b)(2)
The Federal Rules of Civil Procedure allow a defendant to assert lack of personal jurisdiction as a defense to suit. Fed.R.Civ.P. 12(b)(2). On such a motion, “the plaintiff bears the burden of establishing the district court's jurisdiction over the nonresident.” Stuart v. Spademan, 772 F.2d 1185, 1192 (5th Cir. 1985). The court may determine the jurisdictional issue “by receiving affidavits, interrogatories, depositions, oral testimony, or any combination of the recognized methods of discovery.” Id. But when, as here, the Court rules on the motion without an evidentiary hearing, the plaintiff need only present a prima facie case that personal jurisdiction is proper; proof by a preponderance of the evidence is not required. Walk Haydel & Assocs., Inc. v. Coastal Power Prod. Co., 517 F.3d 235, 241 (5th Cir. 2008). Uncontroverted allegations in a plaintiff's complaint must be taken as true, and conflicts between the facts contained in the parties' affidavits must be resolved in the plaintiff's favor. Id. Nevertheless, a court need not credit conclusory allegations, even if uncontroverted. Panda Brandywine Corp. v. Potomac Elec. Power Co., 253 F.3d 865, 869 (5th Cir. 2001) (per curiam).
B. 12(b)(6)
Pursuant to Rule 12(b)(6), a court may dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In deciding a 12(b)(6) motion, a “court accepts ‘all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.'” In re Katrina Canal Breaches Litig., 495 F.3d 191, 205 (5th Cir. 2007) (quoting Martin K. Eby Constr. Co. v. Dall. Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004)). “To survive a Rule 12(b)(6) motion to dismiss, a complaint ‘does not need detailed factual allegations,' but must provide the plaintiff's grounds for entitlement to relief-including factual allegations that when assumed to be true ‘raise a right to relief above the speculative level.'” Cuvillier v. Taylor, 503 F.3d 397, 401 (5th Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). That is, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
A claim has facial plausibility “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “The tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. A court ruling on a 12(b)(6) motion may rely on the complaint, its proper attachments, “documents incorporated into the complaint by reference, and matters of which a court may take judicial notice.” Dorsey v. Portfolio Equities, Inc., 540 F.3d 333, 338 (5th Cir. 2008) (citations and internal quotation marks omitted). A court may also consider documents that a defendant attaches to a motion to dismiss “if they are referred to in the plaintiff's complaint and are central to her claim.” Causey v. Sewell Cadillac-Chevrolet, Inc., 394 F.3d 285, 288 (5th Cir. 2004). But because the court reviews only the well-pleaded facts in the complaint, it may not consider new factual allegations made outside the complaint. Dorsey, 540 F.3d at 338. “[A] motion to dismiss under 12(b)(6) ‘is viewed with disfavor and is rarely granted.'” Turner v. Pleasant, 663 F.3d 770, 775 (5th Cir. 2011) (quoting Harrington v. State Farm Fire & Cas. Co., 563 F.3d 141, 147 (5th Cir. 2009)).
III. DISCUSSION
The Court has discretion to dispose of jurisdictional questions in a manner that promotes judicial economy. E.g., Ruhrgas AG v. Marathon Oil Co., 526 U.S. 574, 58687 (1999) (upholding district court's decision to dispose of personal jurisdiction first); Pervasive Software Inc. v. Lexware GmbH & Co., 688 F.3d 214, 232 (5th Cir. 2012) (same). In this case, because resolution of the personal jurisdiction question raised by Deepblue leads to a more efficient result without offending principles of federalism, the undersigned will address personal jurisdiction first. Id.
Deepblue is a foreign corporation incorporated in Anhui, Province China. Dkt. 7-1, at 1. There is no evidence that it has ever owned properties, rented offices, hired employees, or possessed bank accounts in the State of Texas. Dkt. 7, at 10. Further, Deepblue claims that it has never had any direct contact with Plaintiffs and that the test kits it manufactured were originally sold to Weida Plastic & Machinery Co., Ltd. (“Weida”), who then sold the test kits to Rallo, a company based in Illinois, who then sold the test kits to Plaintiffs. Id. Deepblue argues that this Court lacks personal jurisdiction over it as a non-resident defendant because it did not purposefully avail itself of the benefits and protections of Texas's laws by establishing minimum contacts with Texas. Dkt. 7, at 15. Since Deepblue has not maintained a consistent presence in Texas, nor sent its employees here, it does not have the requisite continuous and systemic affiliations with the State for the purposes of general jurisdiction. Id. Further, Deepblue argues that it did not purposely direct its activities to the State of Texas or avail itself of the privileges of doing business in Texas sufficient to form a nexus to Plaintiffs causes of action for the purposes of specific jurisdiction. Id. at 16.
Plaintiffs respond that, though they believe general jurisdiction is applicable, they “recognize that specific jurisdiction may be more applicable.” Dkt. 11, at 9. Plaintiffs ask the Court to consider the efforts Deepblue took to market and sell its products throughout the United States in finding that this Court has specific personal jurisdiction over Deepblue. Id. at 11. Plaintiffs argue that Deepblue purposefully availed itself of the privileges of conducting business in Texas when it registered its products with the FDA and prepared a waybill that allegedly indicated the test kits were bound for Texas. Id. at 10. Plaintiffs claim that Rallo is Deepblue's “U.S. based wholesaler” and that Deepblue has confirmed that it is the “same part[y]” as Rallo. Id. Based on this relationship, Plaintiffs allege that Deepblue, therefore, sold the test kits through Rallo. Id. On that basis, Plaintiffs argue this Court's exercise of specific personal jurisdiction is proper.
The Fifth Circuit applies a three-step analysis to determine whether specific personal jurisdiction over a defendant exists: (1) whether the defendant purposely directed its activities toward the forum state or purposely availed itself of the privileges of conducting activities there; (2) whether the plaintiff's cause of action arises out of or results from the defendant's forum-related contacts; and (3) whether the exercise of personal jurisdiction is fair and reasonable. Luv N' Care v. Insta-Mix, Inc., 438 F.3d 465, 469 (5th Cir. 2006) (quoting Nuovo Pignone v. STORMAN ASIA M/V, 310 F.3d 374, 378 (5th Cir. 2002)). Although the defendant's contacts with the forum must be “more than ‘random, fortuitous, or attenuated, or ... the unilateral activity of another party or third person,'” even “isolated or sporadic contacts” can support specific jurisdiction “so long as the plaintiff's claim relates to or arises out of those contacts.” ITL International, Inc. v. Constenla, S.A., 669 F.3d 493, 498-99 (5th Cir. 2012) (quotation omitted).
Plaintiffs' minimum contacts arguments rest on four jurisdictional facts it claims are supported by exhibits attached to its response to Deepblue's 12(b)(2) motion to dismiss: (1) Fabrizio Rallo, CEO of Rallo Holdings, from whom Plaintiffs purchased the test kits, is Deepblue's U.S. based “official representative”; (2) Deepblue represented that Rallo and Deepblue are the same parties; (3) Deepblue appointed a registered agent, located in Denver, Colorado, with the FDA and registers its products with the FDA “every year so that it can market and [sell] the registered products across the United States”; and (4) Deepblue prepared a waybill sending the test kits to Texas and knew or should have known its products were being sold in Texas. Dkt. 11, at 2, 8-10. The undersigned will address each alleged fact and Plaintiffs' corresponding exhibits in turn.
A. Relationship Between Rallo and Defendant Deepblue
Plaintiffs present two documents to support their claim that Rallo and Deepblue are the same parties and that Deepblue sold its products to Plaintiffs through Rallo, as its wholesaler or official representative. Id. First, Plaintiffs cite a letter from Deepblue to Rallo in which Deepblue stated: “Deepblue and Rallo are the same parties who have suffered a loss.” Dkt. 11-9, at 2. A closer examination of the letter and the context of the “same parties” statement is necessary.
The letter, titled “Reply on Refund Request,” is addressed to Fabrizio Rallo and concerns “Rallo's request to return ... payment.” Id. at 1-2. In the letter, Deepblue explains that Weida ordered the test kits from Deepblue, then, per Weida's request, Deepblue delivered the test kits to Rallo. Id. at 1. As stated in Deepblue's motion and as explained in its letter to Rallo, the sales and purchase agreement for the sale of the test kits by Deep Blue to Weida stipulates that Deepblue “does not guarantee that the products have been successfully registered or can be sold legally in [Weida]'s sales territory” and that “[Weida] undertakes to understand the laws and regulations of the importing country, be responsible for the legality of the product sales . ensure that the products are sold legally in accordance with the laws and regulations of the importing country.” Dkts. 7-2, at 2; 11-9, at 1.
Deepblue's letter then states that the FDA's adjustment of its COVID-19 antibody rapid test distributor list, which resulted in the de-listing of Deepblue's test kits, is a U.S. policy risk, a force majeure factor that is beyond Rallo and Deepblue's control, and that “neither party shall bear any responsibility or loss for the other party.” Dkt. 11-9, at 1. The letter goes on to say that the test kits for which Rallo sought a refund “entered the U.S. market after legal customs clearance, and everything was in [compliance] with the laws and regulations” at the time of shipment. Id. at 2. Based on these circumstances, Deepblue declined to issue Rallo a refund and took the position that the:
U.S. FDA's listing and distribution policy which is not Deepblue's fault and negligence. Rallo deals with imported anti-epidemic materials, and every purchase plan and order should be a prudent decision based on market opportunities and risks. Rallo should bear the benefits and losses brought about by this! Regarding the adjustment of the FDA policy, Deepblue and Rallo are the same parties who have suffered a loss.Id. at 2 (emphasis added).
It is not the case, as Plaintiffs suggest, that Deepblue stated they are the “same party” as Rallo in a literal sense. Rather, it is clear Deepblue meant that, in terms of their respective positions in relation to the FDA's removal of Deepblue's test kits from the approved test list, Deepblue and Rallo were both at a loss. Deepblue, because it could no longer sell or market its test kits as “FDA approved,” and Rallo, because loss of FDA approval meant that Rallo's buyer, Plaintiffs, now wanted a refund.
The other document Plaintiffs cite for their assertion that Fabrizio Rallo was Deepblue's wholesaler or official representative, and that Plaintiffs, therefore, purchased the test kits from Deepblue is an email from Fabrizio Rallo to the FDA. Dkt. 11, at 2. In the email, dated June 23, 2020, Rallo writes:
My name is Fabrizio Rallo, official representative of ANHUI DEEPBLUE MEDICAL, having full authorization to receive any and all information regarding the status of ANHUI DEEPBLUE MEDICAL submission PEUA200129, based on the authorization letter attached to this email. I will be grateful if your office will let me know the status of COVID 19 test of ANHUI DEEPBLUE MEDICAL as of today or the time frame when it will be approved.Dkt. 11-3, at 1.
The email indicates that Rallo sent a PDF attachment named “1deepblue authorization letter” but the authorization letter itself is not in the record. Id. Rallo's signature states that he is the CEO of Rallo Holdings in Chicago, Illinois and lists contact information for him there. Id. The recipient at the FDA responded the same day stating:
Due to our experiences with authorization letters, we confirm that the authorization letters are authentic with the [FDA] submission point of contact. When I hear confirmation from the POC concerning the authenticity of the letter we will communicate back to you.Id. at 2.
Evidently, the FDA did not recognize Rallo as Deepblue's representative, and he was not the point of contact on record for Deepblue's FDA submissions. There is no further response from the FDA indicating that it was able to authenticate the authorization letter Rallo submitted and confirm that he represented Deepblue or was authorized to receive information about the status of its FDA submission.
Further, as Deepblue points out, the email was sent after Deepblue sold the test kits to Weida on May 19, 2020, and after Plaintiffs purchased the test kits from Rallo on May 30, 2020. Dkts. 13, at 10; 7-2, at 7; 1-2.
The “same parties” statement from Deepblue's refund denial letter to Rallo, and the email from Rallo to the FDA, do not support Plaintiffs' contention that Deepblue and Rallo are the same parties or that Rallo was Deepblue's representative or wholesaler. Accordingly, there is no basis for Deepblue's statement that it purchased the test kits from Deepblue through Rallo, demonstrating Deepblue's minimum contacts with Plaintiffs in Texas.
B. Deepblue's FDA-related Activities
Plaintiffs next argue that Deepblue's FDA-related activities justify this Court's exercise of specific personal jurisdiction over Deepblue. Dkt. 11, at 9. These activities include appointing a registered agent based in Denver, Colorado as the point of contact for its FDA application for approval of its test kits and registering its products with the FDA “every year so that it can market and [sell] the registered products across the United States.” Dkt. 11, at 6. Plaintiffs argue that these activities indicate that Deepblue intended to avail itself of the advantages and protections “of doing business across the United States” including Texas and intended to “engage in the marketing of its products that will be purposefully directed at Texas.” Id. at 10.
Plaintiffs cite two documents in support of their jurisdictional claims concerning Deepblue's FDA activities: (1) a printout of Deepblue's registration with the FDA indicating an official correspondent based in Anhui Province, China and a U.S.-based correspondent, Hui Hong, from Abmed Service in Denver, Colorado, Dkt. 11-4, and (2) a certificate of FDA registration with Abmed's Colorado address and contact information and a list of Deepblue's medical devices registered with the FDA, Dkt. 11-5.
These documents do not support this Court's exercise of specific personal jurisdiction over Deepblue. For specific jurisdiction, courts “look only to the contact out of which the cause of action arises ....” Revell v. Lidov, 317 F.3d 467, 472 (5th Cir. 2002); see also Bristol-Myers Squibbs Co. v. Superior Ct. of Cal., 582 U.S. 255, 264 (2017) (“[F]or a court to exercise specific jurisdiction over a claim, there must be an affiliation between the forum and the underlying controversy ... When there is no such connection, specific jurisdiction is lacking regardless of the extent of a defendant's unconnected activities in the State.”) (cleaned up).
In this case, Plaintiffs' claims of breach of contract, deceptive trade practices, manufacturing defect, breach of implied warranty of merchantability, breach of implied warranty of fitness for a particular purpose, and fraud, do not arise from Deepblue's pre-suit activities of registering a point of contact with the FDA or registering its various products with the FDA. Plaintiffs do not claim those activities were illegal, just evidence of Deepblue's alleged intent to market or direct its products across the United States, including Texas. Deepblue's FDA-related activities themselves are not the basis of Plaintiffs' claims and are insufficient to establish specific personal jurisdiction.
C. Deepblue's Shipment Preparations
Lastly, Plaintiffs allege that Deepblue prepared a waybill sending test kits to Texas, and knew or should have known its products were being sold in Texas, and therefore, this Court's exercise of specific personal jurisdiction over Deepblue is warranted. Dkt. 11, at 10. Plaintiffs state that “[u]pon receipt of payment, Deepblue prepared the shipping Waybill directly to Rallo, its official representative, in Chicago, Illinois with additional specific handling information indicating Tex Air Delivery would be handling the shipping from Chicago, Illinois to Grapevine, Texas” establishing that there was no doubt that the test kits were bound for Texas. Id. at 7, 12.
The documents relied on by Plaintiffs for their contention that Deepblue knew the test kits were bound for Texas are an unsigned contract between Deepblue and Rallo, a commercial invoice, and a packing list on Deepblue's letterhead with Rallo Holdings, Fabrizio Rallo, and Rallo's Chicago, Illinois address in each “to” field. Dkt. 11-8, at 1-3. Plaintiffs also present an air waybill that shows Deepblue was the shipper and Rallo was the “consignee.” Dkt. 11-8, at 4. In the field marked “handling information,” a company called “Tex Air Delivery” with an address in Grapevine, Texas is listed. Id. at 4. The document does not state that Texas is the destination for the shipment, in fact, the form lacks a “destination” field altogether. The unsigned contract, commercial invoice, packing list, and waybill do not prove that Deepblue knew or should have known that the test kits were bound for Texas or were being sold in Texas.
Plaintiffs argue that both Deepblue's FDA activities and alleged awareness that its products were being sold or shipped to Texas equate to Deepblue placing its products into the stream of commerce which “may indicate purposeful availment” for the purposes of specific personal jurisdiction. Dkt. 11, at 10. In cases involving products sold or manufactured by foreign defendants, the Fifth Circuit applies the stream-of-commerce approach to personal jurisdiction. Ainsworth v. Moffett Eng'g, Ltd., 716 F.3d 174, 177 (5th Cir. 2013). The stream-of-commerce principle refers to “the regular and anticipated flow of products from manufacturer to distribution to retail sale.” Asahi Metal Indus. Co. v. Superior Court, 480 U.S. 102, 117 (1987). In Ainsworth, the Fifth Circuit explained that, under the stream-of-commerce approach to personal jurisdiction, the minimum contacts requirement is met so long as the court “finds that the defendant delivered the product into the stream of commerce with the expectation that it would be purchased by or used by consumers in the forum state.” Id. at 177. Under that test, “mere foreseeability or awareness [is] a constitutionally sufficient basis for personal jurisdiction if the defendant's product made its way into the forum state while still in the stream of commerce,” but “[t]he defendant's contacts must be more than ‘random, fortuitous, or attenuated, or of the unilateral activity of another party or third person.'” Id.
In this case, the only evidence of a product placed into the stream of commerce that arrived in Texas is the test kits purchased by Plaintiffs from Rallo. Plaintiffs have not pleaded or offered evidence of other sales of the test kits by Deepblue or Rallo to Texas, the percentage of the sales of Deepblue test kits in Texas, or any other evidence supporting a stream-of-commerce argument. See Pervasive Software Inc. v. Lexware GmbH & Co. KG, 688 F.3d 214, 227 (5th Cir. 2012) (holding jurisdiction “did not arise out of or result from the relatively sparse contacts involving Lexware's fifteen internet website sales of its products to twelve Texas billing addresses”); Am. Eyewear, Inc. v. Peeper's Sunglasses & Accessories, Inc., 106 F.Supp.2d 895, 899 (N.D. Tex. 2000) (jurisdiction did not exist over a defendant company that had made only a “handful of sales, totaling less than $360, to Texas residents”); cf. Nestle USA, Inc. v. Ultra Distribuciones Mundiales S.A. de C.V., 516 F.Supp.3d 633, 643 (W.D. Tex. 2021) (finding jurisdiction where “according to bill of lading data, from July through December 2017, approximately $362,000 worth of Nestle Mexico products were transferred from Ultra Mundiales to Ultra International and imported into Texas”); Loloi, Inc. v. Lolo Imports, LLC, No. 18-CV-2315-L-BK, 2019 WL 5887351, at *3 (N.D. Tex. Aug. 2, 2019), report and recommendation adopted, 3:18-CV-2315-L, 2019 WL 5887218 (N.D. Tex. Aug. 27, 2019) (listing evidence of specific sales in the forum state to support its finding of specific jurisdiction).
The undersigned finds that Plaintiffs have failed to plead and establish that Deepblue has the requisite contacts with Texas for this Court's exercise of specific personal jurisdiction. Because Plaintiffs have not carried their burden in showing Deepblue's contacts with Texas were sufficient, the undersigned need not address whether exercising jurisdiction is fair and reasonable. Halliburton Energy Servs., Inc. v. Ironshore Specialty Ins. Co., 921 F.3d 522, 544-45 (5th Cir. 2019) (“[C]ourts only reach this [fair and reasonable] prong after establishing the defendant's minimum contacts with the forum state.”).
Because the undersigned finds the Court lacks personal jurisdiction over Deepblue, it is unnecessary reach Plaintiffs' motion to dismiss under 12(b)(6) for failure to state a claim.
IV. RECOMMENDATION
In accordance with the foregoing discussion, the undersigned RECOMMENDS that the District Court GRANT Deepblue's Motion to Dismiss for Lack of Personal Jurisdiction Under Rule 12(b)(2), Dkt. 7, and DISMISS Plaintiff's claims for lack of personal jurisdiction WITHOUT PREJUDICE.
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections must specifically identify those findings or recommendations to which objections are being made. The district court need not consider frivolous, conclusive, or general objections. See Battle v. United States Parole Comm'n, 834 F.2d 419, 421 (5th Cir. 1987). A party's failure to file written objections to the proposed findings and recommendations contained in this Report within fourteen days after the party is served with a copy of the Report shall bar that party from de novo review by the district court of the proposed findings and recommendations in the Report and, except upon grounds of plain error, shall bar the party from appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the district court. See 28 U.S.C. § 636(b)(1)(C); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass v. United Servs. Auto. Ass'n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).